Freakonomics and Incentives in Public Administration

Overview of Freakonomics

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything (2005) was co-authored by Steven D. Levitt, a professor of Economics, and Stephen J. Dubner. A follow-up volume, Superfreakonomics, was published in 2009. Freakonomics is aimed at a general audience with no background in the formal study of economics. It is a contemporary work focused on current socioeconomic phenomena, proposing explanations grounded in neoclassical economic theory and supported by empirical sample studies.

Incentives and Public Administration

The main theme of Freakonomics is that "incentives are the cornerstone of modern life." By understanding the incentives that control certain behaviors, we can better understand those behaviors and, potentially, shape them.

Economic theory is important to public administration because it attempts to explain and predict human behavior and thought processes in given situations. The basic goal of policymakers is to shape human behavior through the use of incentives and disincentives, which often take the form of laws or institutions. A policymaker's view of human behavior — and its motivating factors — will determine how that policymaker tries to encourage desirable behavior and discourage undesirable behavior.

Agreement with Levitt's Framework

For the most part, Levitt's core argument is convincing. It is difficult to deny that most people are pursuing their own interests when making decisions. That is, most human behavior can be understood — and perhaps shaped and controlled — by identifying the particular incentives that motivate it. This insight has direct relevance for policymakers seeking to design effective interventions.

Critiquing the Rational Actor Model

The book's focus on incentives is premised on the rational actor model, which assumes that a person's behavior bears a rational relationship to that person's self-interest. This relationship is what yields the type of predictable incentive response that Levitt identifies as the cornerstone of modern life. However, it is not certain that people always pursue their interests rationally — that is, whether people have an accurate understanding of how certain behaviors actually affect their interests.

There are a number of reasons someone may behave irrationally when pursuing their own self-interest. Some people believe they are acting in their best interest when making a decision, yet may ultimately make a choice that harms them due to bad information. Additionally, cognitive biases can distort a person's understanding of the relationship between action and outcome. For example, many people suffer from what psychologists call a "present bias," in which a person will choose an inferior option over a superior one because it provides more immediate gratification. These limitations suggest that the incentive-based framework, while useful, cannot fully account for the complexity of human decision-making.

Conclusion

Freakonomics offers a thought-provoking framework for understanding human behavior through incentives, and its insights carry genuine relevance for public administrators and policymakers. While the rational actor model at the book's core has well-documented limitations, the broader argument — that identifying incentives helps explain and potentially guide behavior — remains a valuable tool for those working to craft effective public policy.